Rupert Murdoch has taken action to prop up the News Corp share price.
A $5bn buyback.
Wow.
Before News Corp announced its plans to buy the 60 per cent of BSkyB it did not own, the company was under pressure to return more cash to shareholders, a point acknowledged by chief financial officer David DeVeo on the Q3 2010 earnings call.
We’re well aware of the resulting inefficient capital structure and are evaluating options for the best use of our surplus cash. This is an important area of focus for us and our Board of Directors as we proceed through our fiscal year 2011 budget process, which is currently underway.
To say News Corp has a very strong balance sheet is something of a understatement. It has $12bn of cash on hand (around 25 per cent of its market cap) which will grow to an estimated $15bn in 2012.
Analysts forecast a ratio of net debt to EBITDA in 2012 of just 0.3. If the buyback is completed that figures rises to just 0.75.
So Olivetree Securities calculates News Corp could repurchase $5bn of stock and still have the financial strength to acquire BSkyB — if, that is, the deal ever got past the UK regulators.
Here’s the workings:
As a reference, on 2012 numbers, just running this buyback would take NWSA to some 0.74x ND/EBITDA. Paying 850p for BSY would have taken NewCo to 1.62x, and doing both would take the proforma to 2.1x levered. This multiple in itself is unchallenging, especially when you take into account that between NWS and BSY they throw off some c$4bn cash per annum, that leverage multiple declines aggressively, without accounting for any synergies or improvements to EBITDA (which come thanks to tax synergies at the very least).
So – this move from NWSA is entirely sensible, should have been expetced by the market and shouldn’t lead to any real new weakness in BSY today. NWS will not be paying for any BSY acquisition for a year from now (at the earliest) so making efforts to make the balance sheet more efficient in the near term is a sensible move.
So, in less than a week, Murdock (sp.) has closed Britain’s biggest selling newspaper, kicked the BSkyB buyout to the Competition Competition to take the politics out of the deal and now he’s launched a $5bn buyback, which also includes the voting shares. (This presumably means he can strengthen “The Family’s” grip on the company).
Not bad for an octogenarian.
What next? The sale of all his UK newspaper interests?
From the Daily Telegraph:
News Corp is considering selling its remaining UK newspapers in a radical exit from a market Rupert Murdoch first entered almost half a century ago, his biographer has claimed.
Michael Wolff, the author of Inside the Secret World of Rupert Murdoch, said that there is a faction within the media conglomerate asking “why do we own newspapers anyway?”
Mr Wolff said of News International – whose stable of papers is now made up of The Sunday Times, The Times and The Sun following the decision to shut News of The World – that “there’s no way for the company to come out of this in a way that doesn’t leave it hopelessly diminished.”
Now, that’s something of a long shot, given the profitability of these titles, reckons Alex DeGroote, media analyst at Panmure Gordon.
Given the iconic, ‘trophy asset’ status of these titles and their collective profitability, outright closure now seems far-fetched. Our working assumption is that aggregate EBIT for all UK newspapers assets is c£60m, though this includes the nowdefunct News of the World. Overall, an asset sale seems more likely, though of course it remains to be seen if these brands are permanently tarnished. This would affect the sale value.
(The Sun / Times / Sunday Times, in context: Respective circulations are 2.7m, 0.5m and 1.0m).
However, it can’t be ruled out.
Pay TV is the future of News Corp, not newspapers, and Murdoch is not the sentimental type.
At pixel time, shares in News Corp were up 0.24 cent at $15.70.
Related links:
News Corp boosts buyback plan to $5bn – FT
Brown says Murdoch papers used ‘known criminals’ – FT Alphaville
Live blog: MPs hold phone hacking hearing with John Yates - Westminster Blog
Rupert Murdoch invited to appear before MPs – The Guardian
Hunt cannot avoid BSkyB decision – Robert Peston